yis proraDiuvery expensiv Firm Firm X Firm Y Firm Z First Unit of Pollution (Dol
ID: 1166744 • Letter: Y
Question
yis proraDiuvery expensiv Firm Firm X Firm Y Firm Z First Unit of Pollution (Dollars) 130 600 90 Cost of Eliminating the... Second Unit of Pollution (Dollars) 165 750 115 Third Unit of Pollution (Dollars) 220 1,200 140 Now, imagine that two government employees proposed alternative plans for reducing pollution by 6 units. Method 1: Regulation The first government employee suggests limiting pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units Total Cost of Eliminating Two Units of Pollution (Dollars) Firm 295 Firm X O Type here to searchExplanation / Answer
Regulation:
Firm X: 130 + 165 = 295
Firm Y: 600 + 750 = 1350
Firm Z: 90 + 115 = 205
Tradable Permits:
Cost of eliminating 3rd unit of pollution by X and Z is $ 220 and $ 140, so if Firm Y offers price greater than $ 140 then firm Z will agree to eliminate their 3rd unit of pollution but X will not. So, prices at which Z will sell its permit but X will not is:
1) $ 141
2) $ 183
At price of $ 454, both firm X and Z will sell the permit because its cost of eliminating 3rd unit of pollution is less than the set price.
Firm
Initial Pollution Permits Allocation
Action
Final Amout of pollution eliminated
Cost of pollution reduction
Firm X
2
Sell one permit
3 units
130 + 165 + 220 = 515
Firm Y
2
Buy two permits
0 unit
0
Firm Z
2
Sell one permit
3 unit
90 + 115 + 140 = 345
Regulation Versus Tradable Permits:
Proposed Method
Total cost of eliminating six units of pollution
Regulation
295 + 1350 + 205 = 1850
Tradable Permits
515 + 0 + 345 = 860
Less costly when government distribute Tradable permits.
Firm
Initial Pollution Permits Allocation
Action
Final Amout of pollution eliminated
Cost of pollution reduction
Firm X
2
Sell one permit
3 units
130 + 165 + 220 = 515
Firm Y
2
Buy two permits
0 unit
0
Firm Z
2
Sell one permit
3 unit
90 + 115 + 140 = 345
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